It’s time to be smarter about advice
As I sit down to write my monthly column I had in mind to write about the potential on-coming car crash between those who interpret pension freedom as being able to spend pension pots in any way the pension plan owner wants and those who think that pensions are a serious business and should be used as far as possible to provide a long term income. However in her excellent Money Marketing leader on June 18th ‘Tough talk on pensions misses the value of advice’ Natalie Holt deals with the issue more eloquently that I can, so I will go on a different tack.
From my view point as someone who has scars on his back as evidence as the old system didn’t work and was not in most customers best interest and has an intuitive feel for what many people want from their pensions in the future, I think both sides of the pension divide may be pushing in the wrong direction.
It seems to me that the Government wants to make it too easy to access pension pots which although a good idea in theory opens a Pandora's Box of issues. However it also seems that the professionals make it harder because they have to keep on the right of regulation and this has a habit of coming back to bite firms in unexpected ways.
It is time for the debate to a new level and to ask ourselves how everybody involved with pensions can be SMARTER about making the new pension freedoms work.
Let’s start with individual clients. They can be smarter with their pensions in a number of ways but perhaps the most importantly they need to recognise when it is in their best interest to take advice. The new pension freedoms puts individual people in control of their pensions and they are free to make their own decisions. But without in any way being patronising, it is simply too difficult for most people to understand the key issues and make the right decisions. The people who have the most to gain is those who receive the advice not the ones giving it.
The regulators can be smarter by recognising what most people actually want. They do want customer protection, the highest standards of qualifications and to know that they will get the best deal. However they also want an advice process which is more customer friendly and designed to meet their needs. My personal view is that we do not have to compromise on the important parts of the advice process such as explaining risks and ensuring suitability but the whole process can be designed to be more customer friendly.
Finally, advisers can be a lot smarter by recognising the need for advice to the ‘middle Britain’ market and designing a service that meets the demand whilst complying with the burden of regulation. This is easier said than done and I understand why many advisers concentrate higher net worth clients because the economics of advising those with pension funds under say £ 100,000 is challenging.
I conclude by urging Government and the regulator to create the framework which allows individuals and advisers to be smarter about the way the pension freedoms are used. I think smart advice is a better phrase than simplified advice and is certainly better than no advice.